Everton points deduction: What the appeal decision means for them and everyone else

Everton have achieved a victory of sorts off the pitch with confirmation their 10-point deduction for breaching the Premier League’s profitability and sustainability rules (PSR) has been reduced to six on appeal.

The club were referred to an independent commission in March for alleged breaches relating to the 2021-22 season and initially deducted 10 points in November, the heaviest sanction in the competition’s history and one described as “wholly disproportionate and unjust” by Everton at the time.

The news of the partial success of the appeal, delivered on Monday, saw Sean Dyche’s team rise to 15th in the Premier League, five points clear of 18th place Luton.

That feels like valuable breathing space, the club are not clear of trouble just yet.

So where did Everton’s appeal prove successful, and where were their arguments knocked back? Has a precedent been set whereby PSR breaches warrant six-point deductions and, if so, what are the implications when it comes to Everton’s second charge for a PSR breach relating to the 2022-23 campaign?

And what of fellow strugglers Nottingham Forest, who will begin their defence against their PSR charge next week?

The Athletic’s Patrick Boyland, Philip Buckingham and Tom Burrows explain. Comments are turned off for legal reasons.

---

Where did Everton’s appeal succeed?

This was an appeal, led by Laurence Rabinowitz KC, fought on nine fronts.

Everton gave up contesting the PSR breach that has landed them in trouble with the Premier League. Instead, they focused on challenging the 10-point deduction that dragged them into relegation danger.

The appeal was heard across three days between January 31 and February 2, with Everton’s legal team ultimately able to convince a three-person board — Sir Gary Hickinbottom, Daniel Alexander KC and Katherine Apps KC — that the original punishment meted out was flawed.

Seven of the nine grounds of appeal were refused but, integral to the reduction in penalty, the appeal board accepted that the original commission hearing, held in October, made legal errors on the other two.

The first of those “particularly pleased” Everton, the club’s statement read.

The commission had initially ruled Everton had been “less than frank” with information given to the Premier League involving debt over its new stadium, adding they had breached another rule when failing to act in the “utmost good faith”.

Everton accepted the figures submitted for PSR calculations had been incorrect and even “misleading”, but stressed that should not imply it was anything but an innocent mistake.

The appeal board agreed. “In our view, just being wrong did not make it ‘less than frank’,” they said. “Making that finding against the club was therefore also procedurally unfair.”

An extension of this was the suggestion Everton had not acted in the “utmost good faith” during the process, which amounted to an alleged breach of Rule B.15.

Everton’s charge had not referred to that point of law, nor had it been discussed at any stage of the hearing. The first mention of Rule B.15 had come in the commission’s final verdict.

It was argued Everton did not have the chance to defend themselves against that charge and, ultimately, it had added “its own discrete aggravating weight” in the 10-point penalty.

A telling win for Everton, but not the only one.

They also convinced the appeal board that a sanction had been imposed without accounting for relevant benchmarks. Everton argued that, had consideration been given, the punishment would have been less severe.

There was sympathy for the commission, who had to reach an initial verdict without guidelines developed by the Premier League, but the appeal board concluded the original panel “should have appreciated that it was not exercising its wide discretion as to sanction in a complete vacuum”.

Everton put forward recent examples of clubs breaching spending rules in the English Football League without the same level of punishment and also revived the ghost of the European Super League, where six Premier League clubs paid out a combined sum of £22million ($27.9m) for their ill-judged pursuit of a new competition.

Other penalties, Everton argued, underlined their own was disproportionate, including the set nine-point deduction for any Premier League club entering administration.

Not all of the comparators put forward by Everton were considered helpful, but the appeal board concluded that “the commission did err in failing to consider and take into account” previous sanctions as benchmarks.

Philip Buckingham

And where did the appeal come up short?

There was enough to ensure Everton could feel “vindicated” in their pursuit of an appeal, but this was no absolution.

The two grounds of appeal that Everton lawyer Rabinowitz had focused upon were upheld, helping reduce the penalty from 10 points to six, but seven others were rejected. “We do not accept the criticism of the commission’s decision on the other grounds, which we dismiss,” said the appeal board.

Everton unsuccessfully argued that the “proper approach” had not been taken with aggravation and mitigation regarding the PSR breach, a point centred on the loss of a USM sponsorship deal through sanctioned Russian oligarch Alisher Usmanov and the suspension of Player X, whose name is withheld, arrested on suspicion of child abuse and eventually released amounting to a loss of £10m.

Attempts to argue Everton were not given credit for cooperation and the interest costs of the new stadium as mitigation also fell short, as were the grounds for appeal that said there had been errors in the approach to overspending and gaining a sporting advantage.

The appeal board heard evidence from Everton’s fan advisory board (FAB) when deciding a perceived failure to treat the impact of the sanction on the club as mitigation ought to be dismissed.

Emphasis was placed on “the necessity, appropriateness and proportionality of any sanction imposed cannot be affected by the understandable strength of feeling of the Everton supporter base in circumstances in which, through no fault of their own, their club may suffer a points deduction and all the consequences that may flow from that”.

There was also an argument made that erred in not considering alternative sporting sanctions, such as a transfer ban, for Everton. It was given short shrift. “The ground (for appeal) has no force,” said the appeal board.

Everton had focused upon other arguments, though, and emerged with the favourable verdicts they had coveted most.

Philip Buckingham

How did the commission decide upon six points?

Taking all 10 points from Everton might have been deemed unjust by the appeal board, but there was no prospect of them avoiding punishment altogether. “We have no doubt that, leaving aside mitigating factors, any breach of rule E.51 warrants nothing less than a points deduction.”

Other available sanctions, including a fine, a transfer embargo and a suspended points deduction, were deemed unsuitable, leading the appeal panel back to the same uncertain ground where the original commission had opted for a 10-point deduction.

“The assessment of how many points would be appropriate is neither a mathematical exercise nor an exercise in which the Premier League has given any guidelines,” said the appeal.

In short, a mess of the Premier League’s making.

Everton’s legal team argued a club entering administration would only suffer a nine-point penalty and it was accepted by the appeal that a 10-point penalty in this case was “internally inconsistent”. That level of penalty, it was said, amounted to 20 per cent of the mean and median points totals in the Premier League.

Eyes were also drawn below in search of precedents to the recent cases seen in the Championship. Derby County, Sheffield Wednesday and Reading were docked points for breaches of PSR between 2020 and 2022 and those punishments had all been decided by the EFL’s guidelines.

That proposed a minimum deduction of three points, but with the figure increasing by a point per £2m-£2.5m spent over the threshold. Even so, 12 points would always be the EFL’s maximum punishment for a spending breach.

Rabinowitz pointed to the case of Sheffield Wednesday, who were docked six points for a financial fair play breach in 2020. That punishment had originally been 12 points, reduced on appeal, but covered a period when the club had exceeded the Championship’s spending threshold of £39m by almost 46 per cent. Everton’s breach had been significantly lower at just under 19 per cent.

Everton’s argument, though, did not take into account the fact that, had Sheffield Wednesday sold their ground three weeks earlier, thus being included in the relevant accounting period, they would not have breached spending rules at all.

Everton’s legal team also argued that the EFL’s guidelines should represent a six-point deduction in this case, reduced by two points owing to the downward trend of their financial losses in the period under scrutiny — another factor in the EFL’s decision-making process.

“Trend is the only mitigating factor raised by the club for which credit should be given,” said the appeal.

Not that it was given too much weight. It was added that the degree of credit given should be “modest” because Everton’s PSR losses were £58m and £53m in the first two years before “spending brakes were applied in the final year”.

Two aggravating factors ultimately ensured Everton were given a six-point penalty.

The PSR breach itself (no longer challenged by Everton) ran to almost £20m and was considered “substantial” by the original commission and the appeal. “We can infer that it gave the club a significant sporting advantage that, although impossible to quantify, requires a deduction of some points simply to eradicate that advantage and to be fair to other Premier League clubs,” said the appeal.

Everton might have justifiably opposed the “less than frank” description of their conduct, but the appeal was not enamoured by their admission that wrong information had been submitted to the Premier League. Or, in Everton’s own words, been “objectively misleading”.

“The error was not simply a slip or over-enthusiastic proposal,” said the appeal, who concluded that Everton’s submission of incorrect figures, regardless of best intentions, amounted to an aggravating factor.

It would be a six-point penalty and nothing less.

Philip Buckingham

What does this mean for Everton’s relegation fight?

Monday’s news boosts Everton’s chances of survival.

The return of four points moved them up to 15th, five clear of Luton, who have a game in hand. Opta’s forecasting model now gives Everton a four per cent chance of relegation, a reduction of 12 percentage points from the weekend. Without playing a game, they have gained considerable ground.

Everton’s survival chances at 1pm on Monday: 83.6%
Everton’s survival chances at 1.30pm on Monday: 95.6%

The Opta supercomputer reacts to news of Everton’s penalty being reduced from 10 points to six #EFC https://t.co/3eW558JtXx 🔗 pic.twitter.com/AiMGqZAxmP

— Opta Analyst (@OptaAnalyst) February 26, 2024

There is another, intangible element to this, too. After months of anxious waiting, manager Sean Dyche and his players finally have clarity on the first charge and some positive news to digest.

The hope has to be that recent positive developments — and the extra headroom — can be the catalyst the squad needs to move away from trouble. Longer term, though, the situation is as clear as mud.

Everton are still in a dire financial state and reliant on loans from 777 Partners for working capital and new stadium costs while the Miami group’s takeover drags on.

There is also the not-so-small matter of another PSR hearing on the horizon…

Patrick Boyland

What does this mean for Everton’s second PSR breach?

In the report, published on Monday, the appeal board said it considered a six-point deduction to be the “minimum but sufficient sanction required to achieve the aims of PSR”.

That seems to establish a precedent for future punishments, but these sanctions are left almost entirely to the discretion of the commission, whose members change from case to case. The Premier League has also previously argued that it believes each situation should be judged on its own merits and that the sanction it suggested for Everton may not apply to future cases.

So, yes, Everton could theoretically get another six-point deduction and so could Nottingham Forest (more on that later) but none of this is set in stone.

Everton’s second case is expected to be heard early next month, with a verdict delivered by the start of April. Everton will argue that they have already been punished for three-quarters of the assessment period in question.

Responding to their second charge in a statement last month, Everton pointed out that, unlike the EFL, the Premier League “has no mechanism to prevent a club from being sanctioned again for breaches in financial periods that have already been subject to punishment”.

They will also hope to make further ground when it comes to mitigating factors, including the impact of the war in Ukraine, their positive trend on spending and losses, and the potential losses incurred due to the situation with Player X.

Although the appeal panel appeared to dismiss most of these arguments for a second time, they were limited in their powers and there was a high bar when it came to overturning the initial conclusions. This was, in essence, a review of the previous hearing and they could only change outcomes in circumstances where the original panel had either not considered the full extent of the evidence or had applied the rules/laws incorrectly.

It is possible, once these arguments are heard again, that a new panel might take a different view.

For the 2021-22 case, Everton’s argument was that, at circa £10m apiece, any ground gained on their points of mitigation relating to the war in Ukraine and Player X had the potential to completely offset the breach figure of £19.5m. The upcoming 2022-23 hearing is also likely to focus on the loss of sponsorship money from Usmanov-linked companies, including USM and Megafon.

One final thing. Based on the timelines communicated by the league, there is a realistic chance we will not hear the outcome of any 2022-23 PSR appeals until after the final game of the season. Rather than relegation being decided on the pitch, it may be left to appeals panels to decide who goes down to the Championship.

That seems fundamentally wrong and something likely to damage the integrity of the competition and the quality of the product itself.

Patrick Boyland

What does it mean for the Everton takeover?

Probably not very much, if we’re talking about the approvals process.

While 777 has been watching on with interest, the cost of relegation has already been factored into the deal with Farhad Moshiri. The Miami-based group stands to pay a lower sum should the worst happen and Everton start next season in the Championship.

The more pertinent question here is why, five months on from agreeing a deal with Moshiri, 777 is yet to gain approval from the Premier League.

The league has recently written to 777 asking it for more clarity on certain issues. The beefed-up owners’ and directors’ test assesses a group’s ability to fund a takeover and its three-year plan for the club it is acquiring.

Clearly, 777 has not yet satisfied officials as to its suitability.

That is the most important factor here, not the outcome of PSR cases. The decision reached there may have an even greater bearing on the club’s long-term future, too.

Patrick Boyland

What does this mean for Forest and the relegation scrap?

Nottingham Forest were also adjudged to have breached PSR. Their defence over spending breaches will begin next week and their case must be heard and concluded by April 15.

This is because, for the first time this campaign, all clubs had to submit their accounts for 2022-23 by December 31 — rather than in March, as they had previously — with any basic breaches of the rules dealt with in time for punishments to be imposed in the same season as the charge was brought. The league has pencilled in May 24 as a backstop date for any appeal. The final day of the season is May 19.

Forest have only been in the Premier League for one year of the last three-year period, which means their permissible losses are even smaller (£61m) than the standard £105m. They reported an annual loss of £45.6million in their latest figures and have signed 42 players since winning promotion back to the top flight in 2022.

Forest sold Brennan Johnson to Tottenham for £47.5m on the final day of the last summer window and will likely argue that, if they had chosen to sell Johnson before the PSR deadline on June 30 with one eye on this set of accounts, they would have received a smaller fee than the one they eventually achieved.

Before their FA Cup match against Manchester United tomorrow, Forest’s head coach Nuno Espirito Santo said: “It doesn’t make sense to think about what might happen. I cannot tell you much. We all have to wait and the decision has to be made… then we will see.”

Then there are those scrapping around the relegation places with no PSR charges hanging over them, incuding Luton.

In an interview with The Athletic this month, their manager Rob Edwards spoke about how they were viewing Everton’s points deduction.

“I keep getting the analyst to update the table (with Everton’s 10 points restored). I don’t want to show the players all the time because I don’t want to flatten them, but we have used it and said, ‘This is the table’. We’re in the bottom three and we need to try to get out of it.

“I want us to survive. I don’t want it to be because of deductions. I don’t want people to throw that at us. Our target is to get to 40 points. It’s a big aim, a bold aim, but we have to.”

And then to the outliers. In February 2023, Manchester City were charged with 115 breaches of financial rules. Last month Richard Masters, chief executive of the Premier League, confirmed a date has been set for a hearing on those allegations.

Chelsea self-reported issues related to payments made during Roman Abramovich’s ownership and are also yet to learn their fate.

Tom Burrows

(Top photo: Simon Stacpoole/Offside/Offside via Getty Images)